What To Do In a Cash Flow Crisis

Cash is the lifeblood of every retail business. Without cash for inventory, payroll and other expenses, an emergency is imminent. Even a profitable business can experience not having enough cash at the wrong moment. One moment cash is flowing, the next moment it is only dripping. Drip. Drip.

It’s an emergency when the cash flow stops and paralyzes your store. But if you still believe in the long-term viability of your business and are willing to work toward its success, put these six steps into action immediately. They are the foundation for avoiding future cash crunches.
Step 1

Personally monitor all cash disbursements.

In a survival situation, cash management should not be delegated. Take personal responsibility for all decisions affecting cash disbursements. Stay informed on a minute-to-minute basis. Dispense cash sparingly.
Step 2

Face the Situation Squarely

The fact that you’re reading this article and are prepared to take charge shows that you are willing to level with yourself about your concern for your store’s situation. Now take it a step further—look at the cold, hard facts.       

List all your liabilities.
  • How much do you owe lenders, suppliers, and others? When must they be paid?
  • Make a list of all pending bills. Date them. Decide which bills must be paid, such as payroll, utilities, and vendor bills for current stock.
  • Check all billings for finance charges and make a judgment on which ones will likely occur, and at what price.

List all of your sources of cash.
  • Look for any areas that might produce immediate cash: sales, receivables, financing?
  • Will these sources of cash eventually allow you to meet your debts and continue to operate your business?

After a careful and honest scrutiny of the facts, if you believe your store can survive, you are ready for the next step.
Step 3

Get on the phone to all creditors

Don’t hide. Call your biggest creditors. Talk with them. Remember, they want you to be in business. Look at some of your bigger cash outlays.
  • Landlords: You may be able to delay payment by a week or two, whatever it takes to get through the crunch.
  • Vendors: Find out how flexible they are. Call them before they call you.
  • Lenders: Explain the situation to your banker, and find out what options exist.
Step 4

List all assets that can be sold

Now is the time to liquidate superfluous inventory, fixtures, etc. Look at everything—even that old display shelf in the back room; another retailer down the street might be able to use it.

In storage you may have some old merchandise gathering dust. Brush it off and put it on sale. Get the word out about your sale and be sure to put the old products alongside an appealing display of fresh inventory.

Customers drawn to the store for the sale may choose to buy the new merchandise. If they see an attractive display of new arrivals, people won’t misinterpret your sale as a “going out of business” sale.
Step 5

Prepare a Cash Flow budget

This is your most important tool. Combined with the steps above, the cash flow budget will help steer you out of trouble.

We suggest that this first budget cover the next six weeks. This will help identify any shortfalls and possible sources of cash to cover them. This six-week plan is an interim measure that will meet your immediate needs.

A longer cash flow budget should be shown to the bank along with your pro forma (projected) income statement and pro forma balance sheet.
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Step 6

Cut and slash

This is the hardest step and requires that you remain both objective and honest at the same time.
  • Analyze all the aspects of your business allowing you to access cash.
  • Look at how you operate your business and find areas that can be cut.
  • Measure your actions by what will allow you to survive the immediate situation against your ongoing needs once through the current crunch.

Look Ahead to Control the Cash

Whew! You made it! These six steps were designed to help you in an emergency, but they also contain the foundation of an on-going strategy for controlling your cash.

Now that you can breathe more freely (and the cash flow has increased a bit) take a more comprehensive look at your business. In order to properly control your cash, it is imperative that you develop a more detailed financial plan.
Lenders are much more willing to cooperate when they are convinced the owner has a viable plan of action:
  • • takes advantage of strengths;
  • • neutralizes weaknesses;
  • • is continually updated and monitored. 
Work out a monthly pro forma income statement for the next twelve months minimum, and preferably for two years. Likewise, develop a monthly cash flow forecast for the same period. Provide for adequate cash in your planning. In the above scenario you would want to include liquidation of any superfluous inventory or fixtures, etc., their estimated cash value, and date of sale.  

Remember, cash is the lifeblood of your store, and a cash flow forecast is its backbone. Don’t predict unattainable results. Forecast only those profits you have every expectation of exceeding.  (My! How impressed people are when actual results exceed your projections!)

Develop a pro forma balance sheet for your business showing the next fiscal year end. If you’ve done your planning properly your projected balance sheet should show continuous strengthening of your turned-around business.

What's next?

If you are a retailer and have read this far, please do this next: call us!  No more dawdling.

We'll listen to you and learn about your situation. From that, we can determine whether we might be of help to you. And if not, we will try to direct you to those who can help. 

​No cost for this inital conversation. Completely confidential.  Remember, our focus is on your future; "Where could you go from here?"

Contact us now for objectivity, choices, and action!